Until just a few years ago, securities were traded only through national and regional exchanges. From the customer's point of view, national exchanges were, and still are, difficult to access, expensive to use, and slow. For a long time, however, national and regional exchanges held an effective monopoly on securities trading. As eventually occurs for all monopolies, competition emerged. Independent electronic communications networks (“ECNs”) rose to challenge the exclusive control of the exchanges. ECNs were successful, which encouraged formation of more ECNs. Now ECNs are capable of competing with national exchanges for large-scale trading services.
The lifeblood of ECNs, as for all markets, is liquidity. Market makers traditionally provide liquidity in the form of inventories of securities. ECNs typically are not market makers. The form of liquidity utilized by ECNs is bookings within the ECNs of actual orders for securities. ECNs only exist on the basis of liquidity. More specifically, any individual ECN that wishes to thrive must find ways of providing liquidity in the form of bookings of securities to market.
In prior art, ECNs competed with exchanges in terms of execution quality, especially speed and transaction cost. Now that there are many ECNs in the marketplace, many of whom provide execution speeds and transaction costs generally superior to that of the large exchanges, often it is true now that ECNs must compete with other ECNs for liquidity. In current art, total round-trip latency between broker-dealer systems and markets ranges from tens of milliseconds to hundreds of seconds, all in a trading environment where markets are often extremely volatile. In these markets, from the customer's point of view, any method of increasing execution speed is highly desirable. Methods and systems for improving order execution quality and methods and systems for generating liquidity for individual ECNs therefore are needed. Moreover, such improved methods and systems benefit the entire marketplace by generally improving both competition for liquidity and improved availability of liquidity.
If an online customer's order flow is directed to a market participant based on latent Level II Quotes, then the customer is at risk of chasing securities. In fact, chasing can occur in any trading situation in which there is substantial delay between changes in actual bookings in a market and the resulting change in a displayed quote. “Chasing” means repeatedly ordering a security at a price that is no longer available because of the delay between the change in the actual quote price or quantity and the display of the quote price or quantity, on the basis of which customers make decisions. An investor who “chases” securities is attempting to buy or sell securities at an order price or in quantities that in fact are no longer available in the market. Some other market participant or investor already bought or sold the securities at the displayed price, and the actual quote price or quantity has changed. The latency in updating quotes results in a display of prices or quantities that are no longer available. Chased orders typically remain unexecuted. It would be useful to have methods and systems for reducing the delay between the time when bookings actually change and the time when new prices or quantities are actually displayed to customers.